Two decades ago, two oilfield services rivals merged to create a company with big ambitions.

Just as Rupert Murdoch had launched the broadcast company Fox in the 1980s to challenge the established television networks, ABC, CBS and NBC, the merged company, Weatherford International aimed to break into a club also dominated by a Big Three, in this case the oilfield services companies Schlumberger, Halliburton and Baker Hughes.

That led to a buying spree as Weatherford gobbled dozens of smaller companies, with a cash deal here, a stock deal there and lots of borrowing to finance the acquisitions. For a while it seemed to work as Weatherford, which has its principal operations in Houston, grew to become the fourth biggest oilfield services company in the world.

Then, it all came crashing down as Weatherford struggled to integrate the disparate components it added, manage the massive debt it took on to become one of the “Big Four,” and recover from the oil bust that hammered the energy services industry. Today, Weatherford is on the brink of bankruptcy and trading as a penny stock after getting delisted from the New York Stock Exchange. Its stock market value has sunk to just $367 million, a mere one-twentieth of its $7.6 billion debt.

In the high risk energy world, where the right gamble at the right time can yield big rewards, but miscalculations are brutally punished, Weatherford is another example of ambitions outrunning execution, a company whose weaknesses were eventually unmasked by the last oil bust. Weatherford was already struggling when crude prices began their slide in the late 2014 and the resulting crash only made things worse.

Stock Market Value

Here’s a look at stock market values among 10 of the largest oilfield service companies in Houston. Stock market values are determined by multiplying the number of shares in the market times a company’s current stock price.

Company

Stock Market Value*

Schlumberger

$55.2 billion

Baker Hughes

$23.8 billion

Halliburton

$22.6 billion

Technip FMC

$10.3 billion

National Oilwell Varco

$9.6 billion

Helmerich & Payne

$6.4 billion

Patterson-UTI Energy

$2.7 billion

Nabors Industries

$1.4 billion

C&J Energy Services

$975.2 million

Weatherford

$366.8 million

* - Stock market value as of close of market on Thursday, May 16, 2019.

The company has not made an annual profit since 2011 while its revenues have fallen by two-thirds over the past five years and its employment by more than half, to 26,500 from a peak of 70,000 in 2013. Weatherford has spent much of the past year selling off assets as it tried to right itself and find a focus and place in the competitive energy services sector. Weatherford declined to comment for this story.

“It’s sad to see a company was once so vibrant to find itself in this kind of position ,” said Drew McManigle, senior managing director for the Houston office of the advisory firm SierraConstellation Partners. “But it happens all the time as we’ve learned in past boom and bust cycles in the industry.”

Meteoric Rise

Weatherford’s roots go back to 1941 when Jesse Hall founded the Weatherford Spring Company in Weatherford, a small town about 30 miles west of Fort Worth. The oil well cementing company quickly found success in Texas and then later overseas servicing the international offshore industry- changing names after buying and merging with other companies as it grew over the decades.

In 1998, $2.6 billion merger between Weatherford Enterra and Energy Ventures Inc., or EVI, created Weatherford International. The merged company’s CEO, Bernard Duroc-Danner, had a vision of Weatherford joining the world’s biggest oilfield services companies and competing with Schlumberger, the industry leader, and the Houston companies Halliburton and Baker Hughes.

With Duroc-Danner at the helm, Weatherford bought 47 smaller oilfield service providers in a series of deals between July 1998 and August 2011, data from Bloomberg shows. Financial terms were only made public for 29 of those deals, which were collectively valued at more than $6.1 billion in various combinations of cash, stock and debt.

“Weatherford was known for aggressive acquisitions” Ed Hirs, an energy economist at the University of Houston. “I know one entrepreneur who would build a couple of oilfield service companies, bundle them together and sell them to Weatherford - and then go out and do it again. Weatherford would pay top dollar for these acquisitions. Most of them were funded by debt.”

Golden Years

Although some oil and gas companies have their own crews to drill wells and perform the technical work to put it in production, most contract such work out to oilfield services companies. As Weatherford grew, it won contracts around the world with oil companies seeking alternatives to the Big Three and lower prices that they believed more competition would bring, said Byron Pope, an analyst with the Houston investment bank Tudor, Pickering, Holt & Co.

“They want more full-service competitors,” Pope said. “They don’t want to be held captive to just Halliburton, Schlumberger and Baker Hughes. They want more industry players.”

During that period, Weatherford’s stock went from nearly $15 per share at the time of the May 1998 merger that created the company to a peak of $49.98 per share in June 2008.

“Weatherford was a fantastic story, it was a fantastic growth story and it was a fantastic stock,” Pope said.

But the good times did not last forever.

Boom & Bust

The first major challenge for Weatherford came just after oil hit an all-time high of $147.27 per barrel in July 2008. Unable to escape the gravity of the brewingglobal financial crisis of 2008, crude oil prices fell sharply that summer, reaching a bottom of $30.28 in Dec. 2008 and cutting demand for service companies.

Weatherford not only endured that downturn, but also found opportunity, buying up smallerdistressed companies - at least 10 of them between August 2008 and August 2011 — and taking on more debt.

Cracks in the strategy began to show as early as 2010, when Weatherford reported quarterly losses as high as $110 million. The company returned to profitability in 2011, but in the second quarter of 2012, it reported an $849 million loss, attributed to write down in the value of assets it had bought. It was largest loss at that point in the company’s history

While Weatherford was good at buying lots of small companies, it wasn’t so good an integrating them into the larger company, said Pope. Even as oil prices were racing again to more than $100 a barrel in the first half of 2014, Weatherford was losing money. It made its last profit in the third quarter of 2014. Then oil prices crashed in the face of a global supply glut.

Weatherford’s revenues dove from about $15 billion in 2014 to $9 billion in 2015. By 2016, they had fallen below $6 billion. All the while, it had to service the debt acquired over the many years of aggressive growth and acquisitions.

The losses grew — $475 million in the fourth quarter of 2014, $1.2 billion in the fourth quarter of 2015, $1.8 billion in the third quarter of 2016. The company’s stock price plunged, from $15.49 a share in the beginning of 2014 to $5.62 at the end of 2016.

“Over time, the institutional investor base became increasingly frustrated with the company’s performance,” Pope said.

Under New Management

Duroc-Danner stepped down in November 2016 and the Weatherford’s board of directors tapped Halliburton executive Mark McCollum to lead the company in March 2017. Just over six months later, the company reported a record quarterly loss approaching $2 billion.

McCollum began selling off non-core assets to reduce debt and refocus the company on drilling equipment and digital services. The company,f or example, sold its hydraulic fracturing and pressure pumping business to Schlumberger for $430 million in December 2017 and its Middle Eastern drilling business to Dubai-based ADES International Holding in four deals worth $287.5 million that closed in March.

But in the end, McCollum’s efforts were not enough to reduce the company’s debt and the pressure on its earnings. Its stock fell below $1 a share in November, leading to its delisting last week by the New York Stock Exchange. It last traded at 37 cents a share.

Facing $553 million of interest payments due this year and another $2.6 billion in senior notes due in 2021, the company reached out to its top creditors. On May 10, Weatherford reached a deal to shed $5.8 billion of its $7.6 billion in long-term debt in exchange for 99 percent of the stock in the reorganized company as part of pre-packaged Chapter 11 bankruptcy, expected to be filed by July 15. The agreement also provides the company with $1.75 billion in fresh credit and loans.

In a statement issued at the time, McCollum said the agreement would improve the company's balance sheet without interrupting operations, vendors, customers and employees. "We are confident that these steps will allow us to continue our transformation journey and position Weatherford for long-term success," he said.

Looking Ahead

If the Chapter 11 bankruptcy succeeds, Weatherford is poised to capitalize on its strength in artificial lift systems that get more oil and natural gas to the surface and offshore businesses. Weatherford and Franks International of Houston have a virtual duopoly on specialized underwater pipelines used by offshore oil and natural gas wells.

“As we see more deepwater drilling activity, whether it’s in the Gulf of Mexico or the West Coast of Africa or emerging plays like Guyana, Weatherford will be well-positioned to benefit,” Pope said.

Rice University Business Professor Vikas Mittal said oilfield service companies cannot only rely on higher oil prices alone. Based on past studies and industry surveys, Mittal said oilfield service companies would see a better return on their investments by improving customer service and listening to their needs, rather than spending money developing new technology and products. Smaller service companies, he said, need to merge, lower their costs and improve customer service to compete with larger ones.

“Developing technology is too expensive and requires research and development,” Mittal said “ They should be focused on what a customer wants. Instead they’re too focused on their products.”

Whether or not the bankruptcy succeeds, Mittal said, Weatherford has additional challenges to overcome. In a recent survey of 1,000 exploration and production companies, Mittal said Weatherford ranked last of seven service companies in terms of customer satisfaction.

“It’s clear that if customers are not satisfied,” Mittal said, “your cash flow will go down.”

Sergio Chapa covers the oil & gas industry for the Houston Chronicle and writes for Texas Inc., a weekly Monday insert dedicated to covering the most powerful business leaders in Texas. Sergio was born and raised in the Lone Star State and studied journalism at the University of Texas at Austin. He previously worked at the San Antonio Business Journal, KGBT-TV in the Rio Grande Valley and Al Día in Dallas.